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EMC acquires VMware -- third company in five months

Hopkinton, Mass.-based EMC acquired struggling competitors Legato and Documentum in July and September, respectively. The Legato deal is in its final stages, and the Documentum merger will be completed Thursday of this week, EMC President and CEO Joe Tucci said.

The acquisition of VMware comes after the Palo Alto-based company was courted for a takeover by Microsoft earlier this year, "but we were unable to come to terms," said VMware President and CEO Diane Greene. The deal is expected to be completed early in the first quarter of 2004. Both company presidents implied that the interest from Microsoft in VMware hastened today's deal.

Tucci said EMC/VMware intends to increase research and development to connect enterprise storage, management, and system integration software within individual networks. He said he did not expect the merger to affect the head count at both companies "very much, if at all."

VMware's products -- VManage, VPlatform, and VTools -- enable multiple operating systems, including Windows, Linux and NetWare, to run simultaneously and independently on the same Intel-based server or workstation and dynamically move live applications across systems with no business disruption. These "virtual machines" integrate seamlessly into existing physical infrastructures and management frameworks, allowing users to see resources as if they were dedicated to them, while administrators manage and optimize those resources globally across the enterprise.

"Customers want help simplifying the management of their IT infrastructures," Tucci said. "This is more than a storage challenge. Until now, server and storage virtualization have existed as disparate entities. Today, EMC is accelerating the convergence of these two worlds."

Greene said, "This combination is a natural fit. Beyond the obvious product synergies, EMC's leadership in advancing open standards and its relationships with the leading IT players will foster ongoing innovation and industry-wide cooperation. VMware will continue its deep relationships with the world's leading server and storage vendors as well as ISVs and systems management providers to jointly develop useful innovation for our customers."

VMware software is used today by thousands of companies worldwide to consolidate underutilized servers, reduce server-provisioning time from weeks to tens of seconds, dynamically move application workloads across servers and workstations without service interruption, and eliminate downtime for hardware maintenance, deployment, or migration.

Upon completion of the acquisition, EMC expects to take a charge of approximately $15 to $20 million in the first quarter of 2004 for the value of VMware's in-process research and development costs and other integration expenses Including the aforementioned charges, the transaction is expected to be dilutive in the first quarter of 2004 by $0.01 per diluted share and is not expected to impact EPS for the full 2004 fiscal year. EMC expects the addition of VMware to be accretive to EPS by $0.01 in fiscal year 2005.

Upon completion of the acquisition, EMC plans to operate VMware as a software subsidiary led by Greene ("I consider this Phase II of VMware," she said.). VMware will remain focused on developing, selling, and servicing VMware's products and solutions.